IMPACT OF KEY AUDIT MATTERS (KAMs) DISCLOSURE ON AUDIT QUALITY: MALAYSIAN PERSPECTIVE

The audit regulator in Malaysia has recently adopted the new auditing standard, ISA 701, that require the inclusion of key audit matters (KAMs) in the auditor's report for public listed companies (PLCs). The new audit reporting standard became effective for Malaysian PLCs financial statement audits on or after 15th December 2016. This study investigated whether this new expanded auditor's report had consequences on audit quality. The study adopts the financial reporting quality measure, absolute abnormal accruals (ABS_ACC), as a proxy for audit quality. The analysis covers the first year implementation impact of the changes in Malaysia context. Findings of this study evidenced that the new change significantly affected audit quality. Finally, findings of this study are useful for standard setters by highlighting the significant implications for policy and standard setting, given that there are conflicting results as to whether additional disclosure requirements such as the KAMs will beneficial to all targeted parties. (C) 2020 Published by European Publisher.